RBI says further state VAT cut on fuels can ease inflationary pressure, expectations

New Delhi, June 8 (IANS): A further reduction in state value added taxes on gasoline and diesel across the country would certainly help ease inflationary pressures as well as inflationary expectations, Reserve Bank of India Governor Shaktikanta Das said on Wednesday. .

Das said in his remarks while setting out the results of the ongoing monetary policy review meeting which started on Monday.

“Our rapid survey of urban households conducted after the May 21, 2022 petrol and diesel excise duty cuts show a significant moderation in their inflation expectations: 190 basis point declines in their three-way expectations months and 90 basis points in one year expectations,” Das said.

To put things into perspective, amid rising energy prices and inflation, the government on May 21 reduced the central excise duty on petrol by Rs 8 per liter and on diesel by Rs 6 per litre, reducing the price of petrol by Rs 9.5 per liter and diesel by Rs 7 per litre.

The global geopolitical situation remains fluid and commodity markets remain on edge, increasing uncertainty about the outlook for domestic inflation. However, some positive developments on the price front in recent weeks could help ease the strong price pressures to some extent, Das said.

These positive developments include the expectation of a normal southwest monsoon and kharif agricultural season, recent government supply-side measures and rolling out their impact, the lifting of the ban on palm oil export from Indonesia and signs of global industry moderation. metal price indices.

“Despite these positive developments, upside risks to inflation persist. These risks emanate from high commodity prices; electricity tariff revisions in many states; high domestic poultry and feed costs for animals; persistent bottlenecks in trade and the supply chain; a repercussion of sales prices in the manufacturing and service sectors; the recent surge in tomato prices which adds to the food inflation; and most important of all, high international crude oil prices.”

On Wednesday, the RBI raised the repo rate by 50 basis points to 4.9% to rein in rising inflation, which has now exceeded the RBI’s 6% tolerance level for four consecutive months. Notably, wholesale inflation in the country has been in double digits for over a year now.

Governor Das said on Wednesday retail price inflation in India is expected to remain above the 6% tolerance level until the third quarter of FY23 before moderating below 6%.

For FY23, RBI forecasts headline inflation of 6.7%, with 7.5% in the first quarter, 7.4% in the second quarter, 6.2% in the third quarter and 5.8% in the fourth quarter, taking into account the normal monsoon and the average price of the crude oil basket. $105 a barrel.

In terms of growth, India’s real GDP growth in FY23 is estimated at 7.2%, 16.2% in Q1, 6.2% in Q2, 4.1 in the third quarter and 4.0 in the fourth quarter, with broadly balanced risks, Das said.

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